Assets Under Management AUM

FANG Stocks: Here’s How You Can Buy Them All for Just $12

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FANG (or FANGMA) stocks are responsible for delivering most of the outstanding returns posted by both S&P500 and NASDAQ 100 indices over the past decade. Made up of Meta (Facebook), Amazon, netflixGoogle (Alphabet), Microsoftand AppleFANGMA has become synonymous with large-cap tech growth in the United States.

These tech stocks are expensive, however. To buy one share of each company at their current price, an investor would need $7,373.23. Oh, and it’s also in US dollars, so you’ll have to pay the currency conversion fee to exchange your Canadian dollars to buy them.

However, various exchange-traded funds (ETFs) can give you instant, capital-efficient, and cheap exposure to the FANGMA cohort. Today, I will present only one: Evolve FANGMA Index ETF (TSX:TECH).

How it works?

As an ETF, TECH holds an underlying “basket” of stocks – in this case, all six FANGMA stocks. When you buy a TECH share, you are therefore buying the underlying FANGMA shares. The amount of FANGMA shares you own depends on how many TECH shares you buy and their percentage distribution within TECH.

Currently, TECH owns the six FANGMA shares held in the following proportions:

TECH currently has a management fee of 0.40%, which is expensive compared to index funds but typical for a thematic fund. The management expense ratio (MER) is not yet known, as trading fees, taxes and turnover have not yet been determined.

The ETF is relatively new, so assets under management (AUM) are low at just $57 million and the volume isn’t too high. However, liquidity and bid-ask spreads should not be a problem, as the six underlying FANGMA stocks are heavily traded.

TECH is also protected against the use of currency derivatives. Theoretically, this means that the value of TECH will not be affected by fluctuations between the Canadian dollar and the US dollar. In practice, the nature of the currency futures contracts used and the imperfect way in which they are rolled over do not always guarantee this.

How does it work ?

When it comes to TECH’s performance, we want to assess its tracking error – i.e. how much its returns differ from holding the six underlying FANGMA stocks in the exact same proportions, the lesser it is better

We can’t see how TECH performed, as the fund has less than a year of data. However, we can make an approximation by back-testing how well a portfolio of the six underlying FANGMA stocks would have performed if they had been held at the same TECH weightings and rebalanced each year:

It looks pretty good! We are seeing a massive outperformance against the S&P 500. I expect TECH’s actual returns to be similar minus a percentage or so to account for MER and currency hedging costs.

The insane takeaway

For investors with a smaller account or who don’t want to convert Canadian dollars to US dollars, an ETF like TECH could be an easy, capital-efficient and inexpensive way to gain exposure to FANGMA stocks.

However, keep in mind that past performance does not equal future performance. Investing solely in US large-cap tech growth is a bad strategy that only really works in hindsight. There is no easy way to know tomorrow’s winners, so the best strategy is diversification.